Mexico holds key interest rate

Mexico's central bank kept interest rates on hold on Friday, highlighting stronger economic growth but noting it would take until the first half of next year for inflation to close in on its target level. The Banco de Mexico maintained its benchmark interest rate at a record low of 3 percent, as expected by analysts polled by Reuters, after policymakers surprised markets by delivering a 50 basis point cut in June.

Growth wobbled early this year, as a harsh US winter hammered American demand for Mexican factory exports and a tax hike dragged on consumer spending. But data last month showed second-quarter growth beat expectations thanks to a pick up in industrial activity and domestic demand, bolstering bets that economic expansion could reach the finance ministry's 2.7 percent growth forecast for 2014.

Policymakers said stronger external demand and a slight recovery in domestic spending fuelled the pick-up, but said slack in the economy would keep stronger growth from fanning price pressures. Still, in its statement released on Friday, the Banco de Mexico's board said it saw inflation converging to the central bank's 3 percent target in the first half of next year - which it had previously forecast for January 2015.

Central Bank Governor Agustin Carstens said last week he saw "very good prospects" that inflation will near the bank's target rate of 3 percent at the beginning of next year. The central bank's inflation target has a tolerance of a 1 percentage point variation from 3 percent. Even so, annual inflation stayed above the central bank's 4 percent tolerance ceiling in early August but eased slightly from late July.